Meta skilled a historic nosedive in worth earlier this 12 months amid a serious rebrand and shake-ups to its enterprise mannequin – and traders are bracing for one more troublesome quarter.
Meta misplaced a document $230bn in market worth after a disappointing earnings report in February, by which it revealed Facebook had recorded its first-ever drop in every day consumer numbers.
While traders can be eagerly watching Meta’s first quarter report on Wednesday for indicators of restoration, a “full turnaround is not expected”, mentioned Debra Williamson, principal analyst at market analysis agency Insider Intelligence.
“It is going to be slow progress for Meta after its massive stock decline last quarter,” she mentioned. “But we – and advertisers in particular – are hoping to see some progress.”
Meta’s wrestle was not utterly surprising: chief government officer Mark Zuckerberg had warned that new privateness guidelines from Apple might value the corporate $10bn in misplaced gross sales this 12 months. The laws forestall Meta from amassing sure consumer knowledge and have prompted the corporate to shift a few of its core promoting enterprise fashions.
One such shift is inserting substantial emphasis on Reels, its shortform video content material that it has but struggled to monetize. The firm warned in final quarter’s report that year-over-year development might proceed to be affected within the first quarter of 2022 by these points.
“We expect continued headwinds from both increased competition for people’s time and a shift of engagement within our apps towards video surfaces like Reels, which monetize at lower rates than Feed and Stories,” mentioned the CFO, David Wehner, in a steerage assertion.
Meta’s pivot to video represents an effort to retain younger customers – a key promoting demographic that has been leaving Facebook and Instagram in droves. The age group offers 97% of Meta’s income, paperwork leaked by the corporate whistleblower Frances Haugen have proven, however is being lured to rivals like TikTok.
Meta has a “formidable competitor in TikTok”, mentioned Williamson, and has but to create a sustainable enterprise mannequin in response. “They said last quarter they were going to figure out how to better monetize Reels,” she mentioned. “This quarter, we are looking for signs that is actually happening.”
Meanwhile, the corporate’s proprietary digital actuality platform, the Metaverse, is sucking away massive quantities of funding from core companies comparable to Facebook and Instagram. Meta funneled $10bn in funding into the platform in 2021 alone – greater than 10 instances what it paid to amass Instagram in 2012.
The Metaverse faces an extended highway to profitability, mentioned Raj Shah, an analyst at consultancy agency Publicis Sapient. Successful monetization typically requires a vital mass of customers – Facebook, for instance, has almost 3 billion. But its Metaverse model Horizon World at present has simply 30,000 worldwide.
“We see no reason to believe that this quarter for Meta will be significantly different than last,” he mentioned. “Meta has announced new monetization schemes for its Metaverse investments, but adoption is still low.”
User numbers are vital to Meta’s success – and a historic loss in customers on its Facebook platform was one of the crucial impactful takeaways from its 2021 fourth quarter report. That loss underscored that Meta’s largest short-term problem is to stem the decline in utilization, Williamson mentioned.
“This was a wake-up call to the market and also to the advertising community that this is a platform that is flattening – it is not the sexy, bright shiny object any more,” she mentioned.
User numbers will most likely be additional hit by bans of Meta merchandise in Russia – the place it hosted hundreds of thousands of customers – amid its ongoing conflict with Ukraine, mentioned Martin Garner, COO at market analysis agency CCS Insight. The nation blocked Facebook and Instagram in March, citing Meta as an “extremist organization”.
“With next week’s results we expect Meta to continue its run of challenging quarters,” he mentioned.